North Koreans Turn to Dollar, Yuan

Images of revalued North Korean currency, released by the Japanese newspaper Chosun Sinbo on Dec. 4, 2009.

Yonhap News Agency

Residents of North Korea are increasingly using foreign currency to conduct daily business as the won suffers stability issues following a new round of international sanctions against Pyongyang, according to sources inside the country.

When asked about the cost of goods in North Korea, residents told RFA that prices are increasingly referred to in Chinese yuan near the border with China or in U.S. dollars in the capital and in the country’s interior provinces.

“[Rice] costs 5 yuan (U.S. $0.80) per kilogram (2.2 pounds),” a resident of Yanggang province who had recently crossed the border to visit China said about the price of the North Korean diet staple.

When pressed to reveal the cost in North Korean won, the source had to calculate his answer using the black market exchange rate.

According to the official conversion rate, 1 yuan fetches 21 North Korean won.

The source said that he was having trouble providing an accurate exchange rate because he had left North Korea several days earlier and the value of the North Korean won had fluctuated wildly since.

But he added that it was becoming increasingly rare for people to buy goods in the northern region of North Korea without using Chinese currency.

“Nowadays, most people won’t sell their products if the buyer uses North Korean currency,” the source said.

“Only vegetable sellers accept the [North Korean] won.”

US dollar

Residents of Pyongyang had a similar story to tell, though prices in their local markets are mostly listed by U.S. dollar.

Asked about the cost of rice, North Koreans who live in the capital responded, “One kilogram of rice costs almost U.S. $1” or, “If you have U.S. $1, you can buy slightly more than a kilogram of rice.”

They said that the dollar, which buys around 7,000 won on the black market, is also a common form of payment in North Korea’s interior provinces.

According to the official exchange rate, U.S. $1 is worth 132 North Korean won.

A resident of the Sinuiju Special Administrative Region, along the border with China in North Pyongan province, said that North Korean won had become virtually unusable in the reclusive and impoverished country.

“Trust in the North Korean currency is getting worse among residents, and the won is losing its value as a general means of payment. It’s impossible to rectify this situation,” the source said.

“North Korea’s economy could not get any worse—it’s already the worst it could be,” he added.

Embattled economy

Earlier this month, the U.N. Security Council ordered tighter restrictions on North Korea's financial activities as part of stiff sanctions for conducting its third illicit nuclear test in February.

The sanctions require states to block any financial transaction that could contribute to North Korea's illicit weapons programs and to prohibit the opening of North Korean bank branches on their territories if there is a link to the violation of Security Council resolutions.

They also call on states to prohibit their financial institutions from opening offices in North Korea. The sanctions apply to bulk cash transfers, including through cash couriers, a common way that North Korea has moved illicit funds.

The move further strains the already embattled economy of North Korea, which faces chronic food shortages and relies on foreign aid to feed its people.

North Koreans are increasingly forced to rely on a private local market system where prices are unregulated by the regime.

But the cost of rice still makes up a significant portion of the average worker’s wages, which for a government worker are officially about 2,000 to 6,000 North Korean won (U.S. $0.70 to $2 based on market rates) per month.

In December, the price of rice had risen to about 6,000 North Korean won per kilogram without dropping as it usually does at the end of the harvest season, according to sources in the country.

Fluctuating value

An economic analyst in China said that articles written in other countries, such as South Korea, about North Korea’s economy often have wildly differing exchange rates listed for the North Korean won.

“It’s because of the constantly changing value of the [North Korean] won,” he said.

“If you want to report correctly about the North Korean economy, you’re better off using the Chinese yuan and U.S. dollar as a standard—it’s the safest way.”

North Korea officially issued a revalued won in December 2009, replacing 1,000-won notes with 10-won notes but strictly limiting the amount of old currency that can be exchanged.

The move sent shock waves through North Korea, with reports of citizens rushing to black-market moneychangers to cash in their won for more stable U.S. dollars and Chinese yuan.

North Korean citizens were threatened with "merciless punishment" for defiance of the new currency rules and were told they had only a week to exchange a maximum of 100,000 won per person of the old currency for new bills.

Reported by Joon Ho Kim for RFA’s Korean Service. Translated by Goeun Yu. Written in English by Joshua Lipes.